As ACMA members continue to make advancements in manufacturing and recycling composites, the benefits of innovation available under U.S. tax law should not be ignored. Federal tax law provides incentives for innovation that could be applicable for these activities, and ACMA is working to protect and improve those incentives.
Generally referred to as the research and development (R&D) tax incentives, they include expensing R&D costs, as well as R&D tax credits. Manufacturers are historically the largest users of these provisions, and the R&D tax credit is one of the tax provisions most frequently used by all U.S. businesses. According to the Internal Revenue Service, manufacturers account for 60% of all tax credit applications, with chemical manufacturers representing the largest group.
While these programs present important opportunities, there are notable limits to the ability of manufacturers to claim them. ACMA members should keep these incentives in mind as they develop their tax strategy.
The R&D tax credit has historically been a program that required renewal every two years, but a 2018 bill made the program permanent.
Unfortunately, due to congressional inaction, expensing R&D costs must now be amortized, rather than fully claimed in the year the costs are incurred. ACMA is working closely with the National Association of Manufacturers (NAM) and other associations to solve this and revert to full expensing in the relevant tax year.
While no significant opposition to this change exists, the current instability in the House of Representatives continues to threaten the ability of Congress to pass legislation. ACMA hopes that legislation before the end of the year will address this issue.
While Washington thrashes about, ACMA members should work with a tax professional to determine how to best use current law to their advantage. Since the fate of expensing remains unclear, one tax expert familiar with ACMA believes the tax credit may make sense for members this year. Kirk Chen with Meritum Consulting specializes in working with companies R&D tax strategies, and Chen spoke at the 2022 CAMX regarding these policies.
“To a tax credit professional, it is obvious that the daily activities of ACMA’s members easily meet the broad definition of R&D under the tax code,” Chen said. “And it’s wonderful that organizations like ACMA and NAM are working hard to put the tax code back the way it was. In the meantime, since amortization of R&D expenses stands as the current law, it is our opinion that the R&D Tax Credit is the single best way to combat the resulting increased tax liability.”
Dan Neumann is vice president of government relations at ACMA. Email comments to email@example.com.